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20-F
MESOBLAST LTD filed this Form 20-F on 08/31/2018
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Amortization of currently marketed products on a straight-line basis over the life of the asset.

Our research and development expenses are not charged to specific products or programs, since the number of clinical and preclinical product candidates or development projects tends to vary from period to period and since internal resources are utilized across multiple products and programs over any given period of time. As a result, our management does not maintain and evaluate research and development costs by product or program. Acquired in-process research and development is capitalized as an asset and is not amortized but is subject to impairment review during the development phase. Upon completion of its development, the acquired in-process research and development amortization will commence.

Manufacturing Commercialization. Manufacturing commercialization expenditure is recognized as an expense as incurred. Our manufacturing commercialization expenses consist primarily of:

 

salaries and related overhead expenses for personnel in manufacturing functions;

 

fees paid to our contract manufacturing organizations, which perform process development on our behalf and under our direction;

 

costs related to laboratory supplies used in our manufacturing development efforts; and

 

costs related to share-based incentives granted to personnel in manufacturing functions.

Management and Administration. Management and administration expenses consist primarily of salaries and related costs for employees in executive, corporate and administrative functions. Other significant management and administration expenses include legal and professional services, rent and depreciation of leasehold improvements, insurance and information technology services.

Fair Value Remeasurement of Contingent Consideration. Remeasurement of contingent consideration pertains to the acquisition of assets from Osiris Therapeutics, Inc. (“Osiris”). The fair value remeasurement of contingent consideration is recognized as a net result of changes to the key assumptions of the contingent consideration valuation such as developmental timelines, probability of success, market penetration, market population, product pricing and the increase in valuation as the time period shortens between the valuation date and the potential settlement dates of contingent consideration. As the net result of changes to the key assumptions and the time period shortening, we recognized a net remeasurement gain of $10.5 million and a net remeasurement loss of $0.1 million for the years ended June 30, 2018 and 2017, respectively.  

Other Operating Income and Expenses. Other operating income and expenses primarily comprise tax incentives and foreign exchange gains and losses.

Tax incentives comprise payments from the Australian government’s Innovation Australia Research and Development Tax Incentive program for research and development activities conducted in relation to our qualifying research that meets the regulatory criteria. The research and development tax incentive credit is available for our research and development activities in Australia as well as research and development activities outside of Australia to the extent such non-Australian based activities relate to intellectual property owned by our Australian resident entities do not exceed half the expenses for the relevant activities and are approved by the Australian government. A refundable tax offset is available to eligible companies with an annual aggregate turnover of less than A$20.0 million. Eligible companies can receive a refundable tax offset for a percentage of their research and development spending. For the years ended June 30, 2018 and 2017, the rate of the refundable tax offset is 43.5%. We recognized income of $1.8 million and $1.5 million, respectively, from the Research and Development Tax Incentive program for the years ended June 30, 2018 and 2017.

Foreign withholding tax primarily relates to the tax on revenue recognized from our patent license agreement with Takeda entered into in December 2017. We recognized $0.7 million of foreign withholding tax in the year ended June 30, 2018 and $Nil in the year ended June 30, 2017.

Foreign exchange gains and losses relate to unrealized foreign exchange gains and losses on our foreign currency deposits held across the Mesoblast Group, including U.S. dollar deposits held in Mesoblast Limited and Euro deposits and receivables held in the Swiss and Singapore entities, respectively, plus realized gains and losses on any foreign currency payments to our suppliers due to movements in exchange rates. We recognized foreign exchange gains of $0.2 million in the year ended June 30, 2018 and $Nil in the year ended June 30, 2017.

Finance Costs. Finance costs consist of accrued interest expense and interest expense in relation to the amortization of transaction costs and other charges associated with the borrowings as represented in our consolidated balance sheet using the effective interest rate method over the period of initial recognition through maturity.

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